Turning Points

"By the Law of Periodical Repetition, everything which has
happened once must happen again, and again, and again -- and not capriciously,
but at regular periods, and each thing in its own period, not another's,
and each obeying its own law... The same Nature which delights in periodical
repetition in the sky is the Nature which orders the affairs of the earth.
Let us not underrate the value of that hint." -- Mark Twain

Current Position of the Market

Long-term trend - Down! The very-long-term cycles have taken over and
if they make their lows when expected, the bear market which started in October
2007 should continue until 2014. This would imply that lower prices lie ahead.
As illustrated by the current market performance, this will not be a straight-down
decline, but will consist of a series of intermediate-term rallies and declines
until we have reached the low point.

SPX: Intermediate trend. The index made a high at 1150.45 on 1/19 and
has been in a downtrend ever since. There is a possibility that this may only
be a correction in an uptrend, and not the beginning of an intermediate decline.

Analysis of the short-term trend is done on a daily basis with the
help of hourly charts. It is an important adjunct to the analysis of daily
and weekly charts which discusses the course of longer market trends.

Daily
market analysis of the short term trend is reserved for subscribers. If you
would like to sign up for a FREE 4-week trial period of daily comments, please
let me know at ajg@cybertrails.com.

Overview:

After many weeks of frustrating the bears, the market finally reversed when
it reached 1150.45. I had projected 1135 for a top, and if surpassed, 1155-60.
The high came in the middle.

At this time, it is unclear if the January 19 reversal is only a correction
in an uptrend, or if it is the beginning of something larger. The main cause
of the decline is the bottoming of the 9-mo cycle which is ideally due next
week. There are many signs that it will make its low on time. The kind of a
rally that the SPX will be able to muster afterwards will determine if it is
only a test of the high, or a rise to new highs.

There is another cycle which is due around March 1st. The 90-day cycle has
been very dominant, bottoming in March, July and November of 2009. The current
phase should continue to exert some pressure on the market until late February-early
March and should be an impediment to a strong rally immediately after the 9-
mo has made its low. But afterwards, the two cycles combined should be able
to extend the "hope rally", as it is called by some, into about May. After
that date, the 4-year cycle should take over and send the market into a more
prolonged decline into the Fall.

This is the basic scenario as I see it, and we cannot know, at this time,
if mid-January will turn out to be the high of the "hope rally", or if it will
come in May or June.

Our immediate focus is on determining the extent of the current downtrend.
It is possible that the bottom will not be made until the 90-day cycle has
made its low.

What's ahead?

Chart Pattern and Momentum

The Daily Chart of the SPX clearly shows the deceleration which was
taking place in the last few weeks of the uptrend. Prices kept rising with
less and less upside momentum until a little past the half-way point of the
90-day cycle, and kept hugging the bottom trend line of an uptrend (black trend
lines) which started after the July correction, unable to pull away from it
decisively. These last few weeks were very frustrating to the bears who kept
expecting a decline at anytime. Now that the decline has started, they may
be further frustrated by the shortness of its duration.

By closing below 1085, the index has given a projection to 1050-1058. This
is marked on the chart by the two lower pink lines, and there is at least a
chance that it might not make it even to that level before it bounces. The
two bottom indicators started to flatten out 5 trading days ago, and the A/D
indicator is now showing some positive divergence. In this position, it does
not take much to turn them up and give a buy signal. However, because of the
90-day cycle bottoming at the end of February, we could have a bounce followed
by another decline into the target later.

Considering the position of most indicators, the market should make a low
in the next 2 or 3 days.

The green channel lines represent the trend from last March. This decline
will not become an intermediate downtrend until it has broken out of that channel
and started to trade below the last short-term low of 1029.38.

We will now move to the Hourly Chart to evaluate when the 9-mo cycle
might make its low.

I like to draw channels by connecting the appropriate lows and then drawing
a parallel from the top. This technique seems to give a good representation
of the trend the majority of the time. In this case, the decline which started
when the index broke below its trend line from July, is framed by the two heavy
black lines which form a down-channel. The index should continue to trade within
the confine of these lines until the trend has reversed. The first indication
of a reversal will come when the red trend line is penetrated on the upside.
It will become confirmed when prices move out of the channel and above the
last price cluster (about 1103).

There is already plenty of positive divergence in the indicators, which normally
means that the reversal is imminent. The nearest projection of 1069 could indicate
an interim low within the downtrend, unless enough strength develops to move
through the trend and channel lines, in which case it would become the low
of the decline. The main projection, however, is between 1050-58, and the small
cycle bottoming on 2/3 in conjunction with a CIT occurring on the same date
could mark the low of the 9-mo cycle.

Cycles

The 9-mo cycle is mainly responsible for the current decline. Ideally, it
should bottom in the next few days. It will be followed by the 90-day cycle
which has been very dominant and is scheduled to make its low towards the end
of February.

Longer-term, the 4-year cycle should exert pressure in the second half of
the year.

Projections:

There is an interim projection to 1069.

By breaking below 1085, the SPX has given a projection to 1050-1058.

We should also keep in mind that .382 retracement of the move from July to
the top is 1043.

Breadth

This was the comment made in the last newsletter:

"The NYSE Summation index (courtesy of StockCharts) has now reached overbought
on its RSI. The rally in the SPX to its projection target has caused it to
become overbought with severe negative divergence --just
what we need for a top.We now need for it to turn down for a sell
signal."

This is what the index now looks like. It is now just entering the oversold
status and does not look quite ready to turn up -- which means that we might
have more declining prices ahead of us before we find a low.

The short-term A/D is beginning to show a pattern of deceleration and divergence
to price, which is an indication that an interim low may be just ahead of us.

Market Leaders and Sentiment

Also from the last newsletter: "The long-term sentiment indicator (courtesy
of SentimenTrader, above)is now in a position
to give us at least a short-term top."

Currently, the indicator is showing the exact opposite of what it did two
weeks ago: it is bullish and suggests that a low is imminent.

We should also note that the banking index has hardly participated in the
decline.

Summary

This was the comment made in the last newsletter:

"The SPX is now ready to have a short-term decline which could be the start
of something bigger. To suggest that we have started a move of intermediate
nature, we would have to trade below 1030. More topping action may be needed
before we are ready to do this."

I think that I will let it go at that.

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The above comments about the financial markets are based purely on what I
consider to be sound technical analysis principles uncompromised by fundamental
considerations. They represent my own opinion and are not meant to be construed
as trading or investment advice, but are offered as an analytical point of
view which might be of interest to those who follow stock market cycles and
technical analysis.